28 April 2017

The Chancellor has decided that the Treasury, the UK’s finance ministry, will no longer be responsible for financial management across Whitehall. Julian McCrae assesses this surprise decision.

Last week the Treasury announced that the leadership role for financial management will move to another department. This decision reverses one of the key initiatives to improve Whitehall’s effectiveness, at a time when the country faces the multiple challenges delivering Brexit and coping with growing public service pressures.

In 2013, the Government conducted a major Financial Management Review. At that point, the leadership role for improving financial management was located in the Department of Health. Indeed, our research with the Chartered Institute for Management Accountants (CIMA) had shown it was also out of line with other centres of government, where the equivalent role sits in the central finance ministry.

The 2013 Review concluded this leadership model was out of line with the private sector, where the Chief Financial Officer (CFO) sits at the heart of the organisation and its decision making. This change was welcomed at the time, and many saw it as ending an aberration in how Whitehall operated.

Yet only a few years later, the Chancellor has reversed the change, leaving the Treasury to concentrate on the narrow task of cutting spending. The leadership role for financial management – making sure that spending efficiently delivers the outcomes that matter to taxpayers – will move back to another Whitehall department.

It remains unclear why this has happened. The evidence clearly shows that the post-2013 leadership structure was working. It is also clear that this was not a case of “job done” – while there have been some tangible improvements, core ambitions such as ensuring financial insights flow into all Whitehall’ s decisions are still a long way off.

Only a few days ago, the Public Administration and Constitutional Affairs Committee’s report on accounting in government called on the Government to continue its investment in the post-Financial Management Review model. Now, with the loss of central leadership and Treasury support, the risk is that the reforms will go the way of many other initially promising but ultimately failed cross-departmental initiatives.

All this comes at a time when the need for stronger financial management in Whitehall is greater than ever. The 2013 Review could credibly claim that spending reductions were “one year ahead of schedule and, on the whole, levels of satisfaction with public services have been maintained or improved”.

This stands in stark contrast to the situation now, where the our Performance Tracker, produced in partnership with CIPFA, clearly shows that the government is struggling to implement the current spending review.

The final oddity of this decision is its timing. Whitehall is in purdah, and it should not be doing anything that implies views on the outcome of the election. However, this decision goes directly against the recommendations of the review of the Treasury commissioned by Shadow Chancellor John McDonnell. It seems that the Treasury at least sees no possibility of Labour winning the election!

Comments

Your recent comments on the narrow capabilities of recent recruits to posts in HM Reasury are interesting. A more extensive audit as a basis for improving the quality of Treaury policies and advice would be welcome and might point to a remedy for its currently unsatisfactory output.